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Extractive Industries Transparency Initiative (EITI) only tracks mineral revenue, not expenditure

While EITI is aimed at reducing the pitfalls of natural resource curse, EITI only tracks revenue, not expenditure. Above all, it does not keep track of the countries' expenditure and earnings, which will not curb unnecessary spending of mineral proceeds, leading to corruption and self-enriching by those in the top echelons of power.

By Features Reporter

ANALYSIS – (Mining Index) –IT is a noble idea for Zimbabwe to join the Extractive Industries Transparency Initiative (EITI), but it is another story as subscribing to the world body is not the overall panacea to bottlenecks affecting Zimbabwe’s mining sector.

Control over mineral revenue is one of the main stumbling blocks affecting African countries to achieve sustainable economic growth.

Developing countries have suffered from what experts term the “national resources curse” phenomenon, where corruption and rebellion follow after discovery of valuable natural goods, as the case with DRC.

In his presentation of the 2019 national budget, Finance and Economic Development minister Mthuli Ncube announced Zimbabwe’s immediate intention to become a member of EITI.

“In order to move along with international best practices on achieving transparency in management of natural resources, Government would want to be a member of the Extractive Industries Transparency Initiative (EITI) as soon as possible.”

EITI was founded in 2003 to promote good governance, open and accountable management of oil, gas, metals and mineral resources, guided by the belief that a country’s natural resources belong to its citizens.

However, exploitation of such natural resources mostly benefit the elite, with the majority of citizens benefiting nothing, only reading about mining acquisitions and mergers in the media. The locals are not given the first right of refusal when such lucrative mining deals emerge, and the communities they live continue undeveloped.

Government of Zimbabwe cited varied benefits of subscribing to EITI, in which the extractive body currently hosts 51 implementing countries, supported by a coalition of governments, companies, and civil society.

“Membership is critical in order for the country to benefit from strengthened public and corporate governance, promote understanding of natural resource management, and provide the data that guide reforms for greater transparency and accountability in the extractives sector.”

EITI Standard requires the disclosure of information along the extractive industry value chain from the point of extraction, to how revenues make their way through the government, and how they benefit the public.

It is important that Zimbabwe makes it legislation, for all mining companies, to contribute an agreed percentage of their proceeds towards Corporate Social Responsibility (CSR) for communities within proximity of their mining claims. The same has been proposed for consideration in the National Diamond Policy expected to be announced soon.

EITI seeks to strengthen public and corporate governance, promote understanding of natural resource management, and provide the data to inform reforms for greater transparency and accountability in the extractives sector.

While EITI is aimed at reducing the pitfalls of natural resource curse, EITI only tracks revenue, not expenditure. Above all, it does not keep track of the countries’ expenditure and earnings, which will not curb unnecessary spending of mineral proceeds, leading to corruption and self-enriching by those in the top echelons of power.

Most African countries, Zimbabwe included keep reeling in poverty due to corruption emanating from illicit mining agreements benefiting a few and smuggling of these natural resources for personal gains, leaving no transparency in the sector.

Whenever there is a new natural resource discovery, there is always a spike in illicit financial outflows (corruption), estimated to be prejudicing the continent of about US$50 billion per annum.  It has become a norm among Zimbabwean business people to demand for a ‘bubble gum,’ or bribe for facilitating a lucrative deal, a culture that need to be weeded out of the minds of many.

This means EITI cannot fully account for externalised funds from respective member states as some of the revenue from mining activities escape unrecorded.

While it has been difficult to police mineral seepages, plugging leakages in the mining sector will require implementation of a robust monitoring framework, which government has announced it is working on.

Corrupt activities have thus been recorded across most minerals in Zimbabwe. The alleged missing US$15 diamond revenue points to serious anomalies in the diamond mining sector.

The recent fight reported between Minerals Marketing Corporation of Zimbabwe (MMCZ) and Zimbabwe Consolidation Diamond Corporation (ZCDC) over control of diamond sales may turn out that the treasury may have been or is being prejudiced of revenue, issues which EITI can help manage.

However, most African countries lack financial literacy on how to manage public funds. EITI cannot however, intervene to manage expenditure of mineral revenue since respective governments have financial independence on expenditure and allocations, although they seem to lack financial literacy in managing public finance.

Joining EITI could be a way for government to solicit an alternative route to get funding for mining investments in Zimbabwe. While respective countries self-fund for the implementation of EITI standards, financial support can also be obtained from international development agencies.

On record, the World Bank’s Multi-Donor Trust Fund for EITI (EITI-MDTF) disbursed US$70 million in technical and financial assistance to EITI-related programs and projects in over 40 countries between 2005–2015.

Zimbabwe has been unable to borrow from international lenders since 1999 after defaulting on payments. Latest figures reveal that Zimbabwe owes US$680 million to African Development Bank (AfDB), over US$1.4 billion to the World Bank and US$308 million to European Investment Bank (EIB).

“As at end of August 2018, public debt stood at US$17.69 billion, of which domestic debt accounted for 54% up from 49%, while external debt moved down from 51% to 46%,” said Mthuli.

Ministry of Mines and Mining Development earlier this year projected the mining sector would rake in over 70 percent to Zimbabwe’s foreign currency earnings, approximately 13 percent of the gross domestic product (GDP), which if Zimbabwe becomes an EITI member, it can authenticate as credible, mining revenue generated in Zimbabwe.

Regional development banks, international development agencies, bilateral agencies, and international civil society organizations fund the activities of national EITIs, and implementation of the standard in the member countries.

Mthuli noted that Zimbabwe is among 40% of low-income countries in the region saddled with unsustainable debts.

Government has increasingly relied on the overdraft facility with the apex bank, which has spiked

upwards against the provisions of Section 11(1) of the Reserve Bank Act [Chapter 22:15], which requires that central bank’s lending to the State not to exceed 20 percent of the previous year’s government revenues, which stood at $3,870 billion. ENDS//

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